Window on 2010: Impact of Imaging-Specific Health Care Reforms

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Since the dawn of the DRA at the close of 2005, health care observers have predicted a follow-on DRA II. It appears that this prediction will come to pass shortly after the clock strikes midnight on December 31.
imageShay Pratt
In a carefully considered presentation at the Gleacher Center in Chicago on December 2, Shay Pratt, managing director, The Advisory Board, Washington DC, laid out for members the potential impact of the reforms contained in the 2010 Medicare Physician Fee Schedule final rule as well as imaging-specific measures contained in competing health reform bills, both on imaging reimbursement and the freestanding market at large.
“With reform discussions, there is so much going on with imaging in particular that it is a good question to ask: What will happen to future demand and profitability with the current proposals on the table?” —Shay Pratt, managing director The Advisory Board, Washington, DC
Volume to Grow, Payments to Plummet Imaging has been a high growth area for the past ten years, though the DRA, the economic downturn, and preauthorization in particular have dampened that growth considerably, Pratt commences. Reform talk aside, The Advisory Board expects outpatient growth to resume in the near term once unemployment rates normalize. MRI is expected to grow from 25.8 million outpatient procedures in 2008 to 33.7 million procedures in 2013, for instance. Outpatient CT procedures are anticipated to increase from 48.3 million in 2008 to 62.3 million in 2013. Thanks to the 2010 MPFS Final Rule, however, steep declines in reimbursement for freestanding and in-office outpatient imaging can be anticipated. “Across radiology there are a lot of reductions going on,” Pratt says. “There are a couple of things in play here: There are general reductions downward for some RVUs because [CMS is] borrowing from imaging to pay for increases in primary care and other areas; there are malpractice adjustments; and there are other general practice expense changes. But the big story is the change to the equipment utilization rate factor.” The 2010 MPFS final rule calls for a four-year phase-in of a new 90% equipment utilization rate assumption that will see payment for some codes falling below the HOPPS in the next two years. An ACR impact analysis show a 5% reduction in global payments in 2010 and a 16% reduction in 2013, when the 90% equipment utilization rate assumption is fully implemented.
imageSource: The American College of Radiology
Much of that decline will be contributed by steep cuts to the technical component. Pratt offers the example of 74160 CT abdomen with contrast. According to the fee schedule, the technical component of this code was $298 in 2009, but the DRA caps the payment at the lesser of the physician fee schedule or the hospital rate, which was $297, so Medicare part B paid the technical component at $1 less. But as the equipment utilization factor is phased in, the technical payment rate drops 13% to $259 in 2010, and 45% in 2013, to $162.
imageSource: The Centers for Medicare and Medicaid and The Advisory Board
“Eventually you are looking at a huge hit in terms of the technical payment for this procedure,” Pratt notes. “This is a case in which a procedure will be paid less than the hospital rate next year.” Some procedures will fall below the HOPPS payment rate later than others. Pratt offers the example of MRI Chest Spine w/o contrast: The DRA caps the 2010 technical component at the 2010 HOPPS payment rate of $349 in 2010, but in 2011, the technical component rate falls to $330, $19 below the hospital rate. “In general by 2011, you will start see the early signs, but by 2012, most codes will be paid less than the hospital rate,” Pratt reports. Health Reform Bill to the Rescue? Pratt notes that the two health care reform bills under consideration could mitigate the 90% increase put forth by CMS. The House bill would increase the equipment utilization rate factor to 75% in 2011, while the Senate version offers a more gradual increase in the rate assumption: 65% until 2012; 70% the following year; and 75% in 2014. “The Senate version also calls for an impact study to make sure there is no detrimental affect on access,” Pratt notes. “The bottom line is that with the reform bill’s passage, the full 90% utilization factor increase won’t be implemented, but there nevertheless will be a reduction in payment for most codes if the 75% factor goes into effect.” A bigger concern, according to Pratt, is whether commercial payors will peg their rates to the new Medicare payments, as has been their practice. “If you think back to when the DRA rate hit, a lot of commercial payors started jumping onto the DRA rates as their new baseline. Before the DRA, a lot of codes were being paid double what hospital payment rates were. That was a big hit, too, at the time.” Chill in the Freestanding Market To understand how these payment reductions could affect the freestanding market, Pratt pointed to the recent Verispan Diagnostic Imaging Center Market Report, which identified just 41 incrementally new entrants into the market in 2008. “ A lot of entrepreneurs began thinking twice about entering the market after the DRA,” Pratt notes. “A lot of things were stacking up against these facilities in terms of making a new business venture.” Factoring in the requirements for accreditation by 2012 for non-hospital providers, Pratt surmises that it became increasingly clear that this would be a more difficult market moving forward. One of the main reasons for the slowdown is that the DRA flattened imaging’s cost growth trend beyond anyone’s expectations. Pratt shared data from the Government Accountability Office report from 2008, which showed Medicare Part B spending on imaging dropping from $419 per beneficiary in 2006 to $375 in 2007. “This is one of the main reasons—as well as preauthorization—that we are seeing the imaging center market decline,” Pratt believes. Pratt predicts tough choices ahead for freestanding outpatient imaging center providers. Citing a joint survey of imaging centers from the ACR and the RBMA investigating how owners would respond to reductions in global payments, Pratt says that many centers have already implemented staff and overhead reductions, as well as forestalled equipment upgrades in response to the DRA, leaving them to consider more serious strategies such as limiting access to Medicare patients, consolidating sites of service, and closing imaging centers, in response to the new rate assumptions. While he had no hard data as proof, Pratt cited numerous anecdotal conversations about independent centers looking for buyers. “There is a lot more buying and selling going on than closing, but we could see some closings moving forward,” he says. “You have to think about who is really at risk here.” Pratt believes new centers established in the past 5 years that are coming up on equipment upgrades, and the single modality sites, such as the PET-only shops and MRI centers, are on the frontline of feeling the financial hit. Hospital Response Mixed The hospital response to this market upheaval is clearly mixed, according to Pratt. “Some institutions feel like they can wait it out, essentially,” Pratt reports. “The changes they are seeing are causing a lot of chaos in the market, and they prefer to compete against them and fight for share rather than acquiring new centers or make a new investment in a brand new entity. Certainly this is a valid strategy given what is going on in the market.” On the other hand, some hospitals are taking full advantage of the current environment and are acquiring new centers, Pratt says. Some centers are available on the open market; others are represented by independent brokers. Stories abound about hospitals interested in getting a better outpatient imaging center presence simply knocking on the door of a center they’ve coveted and having a receptive discussion around acquisition, Pratt says. CMS, and Pratt as well, dismiss predictions of an access crisis in the near future. “Certainly if you look at states like Texas, California, and Pennsylvania, 40% of imaging center presence is in 5 states, so you could argue that there is a lot of overcapacity in some markets,” Pratt notes. And although hospitals in particular run their capacity high on scanners, Pratt reports that hospitals have a lot of confidence in their ability to absorb demand if the need arises. “The larger question is beyond the immediate or near term, after the 5 year mark, maybe in 2017 or 2018: What would the landscape look like?” speculates Pratt. “In the near term, it probably won’t be a huge issue, but there are some key questions for capacity in the long run.” Cheryl Proval is editorial director of and the editor of Radiology Business Journal.